As SMEs across all sectors have been impacted by the Covid-19 crisis, many will have been eagerly awaiting the Chancellor’s latest Budget last month – and it did contain a number of opportunities for smaller businesses. The announcement of a new super-deduction allowance in particular represents a significant opportunity for SMEs that are looking to become more sustainable and cut their energy costs.
WHAT’S IN THE BUDGET FOR SMES?
Understandably, many smaller businesses will have focused on the measures that have been specifically targeted at SMEs, such as the Help to Grow scheme, which will provide vital digital and management tools and training to help SMEs grow. Other key announcements included the welcome news that all businesses with profits of less than £250,000 will not be taxed at the full 25% rate when corporation tax is increased in 2023, and that the Coronavirus Job Retention Scheme will be extended to September.
However, another important measure that could benefit SMEs is the new super-deduction allowance. This gives businesses a capital allowance of 130% on new plant and machinery investments which would typically qualify for 18% ‘main rate’ capital allowances, and a 50% allowance on plant and machinery that would ordinarily qualify for 6% ‘special rate’ capital allowances. This means that if you invest in plant and machinery, you could cut your tax bill by up to 25p for every £1 you invest.
‘Plant and machinery’ may sound like something that only applies to those with large properties or factories, but the Government defines plant and machinery as ‘items that you keep to use in your business’. Although there are some exemptions – you cannot claim tax relief on your building’s mains water and gas systems, or on things you lease – there’s a wide range of equipment you can now claim a super-deduction allowance for.
So, there’s a real opportunity for SMEs who have been interested in investing in energy efficiency or on-site generation assets, but have not been able to build a business case due to the upfront capital required. While the cost you will pay upfront to install solar panels, for instance, will remain the same, by claiming the super-deduction allowance you could reduce your taxable profits by up to 50% of the cost of the investment. If you invest in anything that’s usually on the ‘enhanced capital allowances’ list, such as electric vehicle charge points, or energy-saving equipment that’s on the energy technology product list, you’ll also be able to claim the super-deduction allowance. This means that energy optimisation equipment that was previously out of your reach or appeared to have too long of a payback period may now be economically viable for your business.
HOW CAN OPTIMISATION ASSETS BENEFIT SMES?
While you will still need to make an upfront payment for any new plant or machinery you install, you should see any money you pay for energy efficiency or renewable on-site generation technology as an investment rather than an expenditure.
With grid energy costs set to continue to rise in the coming years, any equipment that is designed to enable your business to optimise its usage should help you to reduce your energy bills. Energy efficiency equipment should enable you to reduce your consumption, while having a renewable on-site generation asset can help to reduce your business’s reliance on grid energy, both of which will help your organisation to cut its bills. As the super-deduction will substantially reduce the expenditure required to install such equipment, you could also find that the payback period is much shorter than it once was.
If your business is striving to become more sustainable, then it’s likely that energy efficiency and on-site generation assets will factor in your sustainability journey. Reducing the amount of energy you use is the best way to reduce your overall carbon emissions, and if you can switch to on-site generation, you could also help to reduce the growing pressure on the grid as we transition to a low carbon future. With the super-deduction allowance now available, you could find that assets or equipment you thought you wouldn’t be able to afford until your business was further along the road to net zero are now within your reach.
SEIZE THE OPTIMISATION OPPORTUNITY
The super-deduction allowance can be claimed on all qualifying plant and machinery bought between 1st April 2021 and 31st March 2023. It takes time to plan for new equipment and work out which assets will provide the most benefit to your business, so you should start considering your options now if you want to get the most benefit out of the new tax allowance.
At Bryt Energy, we want to support SMEs at every stage of their sustainability journey, so we’re ready to help you to seize the optimisation opportunity the super-deduction allowance represents. To find out more about how we can help you to optimise your energy usage, call our team on 0121 726 7575 or get in touch, here.